- A psychological contract refers to the unspoken assumptions and expectations that exist between an employer and an employee.
- Psychological contracts, at least in theory, facilitate a positive employer-employee relationship based on a set of mutually agreed upon ground rules, informal arrangements, or mutual beliefs.
- The vast majority of employees follow a set of uncodified rules in the workplace based on personal morals, common sense, industry expectations, or formal etiquette. Individual and collective understanding of these rules facilitates more productive employee-employer relationships and promotes an inclusive workplace culture.
The early history of psychological contracts
A psychological contract refers to the unspoken assumptions and expectations that exist between an employer and an employee.
American business theorist and professor emeritus at Harvard Business School Chris Argyris popularized the psychological contract in 1960.
In his book Understanding Organizational Behavior, Argyris defined the psychological contract in the context of an implicit understanding that existed between a foreman and their team of employees.
The theorist posited that a relationship could be developed where team members would be more productive and report fewer grievances in exchange for job security and an acceptable wage.
Argyris also believed that employees would increase their performance if the company did not interfere with their norms.
In exchange for less interference, the employees would respect the organization’s right to evolve and change.
In what would prove to be the first conceptualization of the concept, Argyris saw psychological contracts as the exchange of tangible, specific, and predominantly economic resources between two parties that would enable both to fulfill their needs.
Later conceptualizations of psychological contracts
In 1962, Levinson and other researchers expanded on Argyris’s ideas to include the exchange of intangible resources.
They also argued that for the relationship to be sustainable, the exchange between the two parties must be mutually beneficial.
After interviewing 874 employees about these relationships, they drew some important conclusions.
Some employees spoke of expectations that had an obligatory quality, and since many of these expectations arose from subconscious motives, each party may not be aware of their own desires let alone the desires of the other party.
Levinson’s work later contributed to the idea that despite covering some complex or intangible factors, psychological contracts were a reciprocal arrangement where employees would only do x if the company did y.
Far from being adversaries, however, many scholars believed that reciprocity meant the employee and employer had strong expectations of one another and were more likely to continue the relationship.
Modern definitions of a psychological contract
Psychological contracts, at least in theory, facilitate a positive employer-employee relationship based on a set of mutually agreed upon ground rules, informal arrangements, or mutual beliefs.
Note that these contracts pertain more to the human aspect of workplace relationships and less to their commercial or transactional side.
While there cannot possibly be a definitive list of the rules that influence psychological contracts, most will cover common aspects of employment relationships such as:
- Future career prospects.
- The perceived level of fairness around pay and benefits.
- Training and development.
- Manager support, and
- Job security.
Nevertheless, psychological contracts are a somewhat nebulous idea.
In other words, psychological contracts represent intangible promises derived from repeated workplace interactions.
The evolution of psychological contracts
Perhaps intuitively, psychological contracts evolve and adapt over time as workplace cultures evolve and adapt.
In some cases, however, these contracts can be resistant to change if employees or organizations are not willing to embrace the new status quo.
Psychological contracts also develop and evolve in response to communication (or a lack thereof).
In addition to workplace conversations, communication includes body language, tone of voice, and even inferences or implications that exist between both parties.
When two-way communication does not exist, the contract becomes unbalanced since one party perceives the other to be unable to fulfill its promises.
Typical promises broken in the workplace include those related to raises, promotions, training, performance reviews, or a misrepresentation of the type of work involved.
These broken promises are referred to as “breaches” and result in a loss of trust and respect. Employees tend also to become unmotivated and unproductive and may seek employment elsewhere.
While many breaches are simply unavoidable, organizations can avoid many of them by demonstrating fairness when attempting to repair or deal with the situation.
The importance of psychological contracts in the workplace
Like it or not, the vast majority of employees follow a set of uncodified rules in the workplace based on personal morals, common sense, industry expectations, or formal etiquette.
When employees take the time to understand these rules, the relationships between superiors and their subordinates is more robust.
When these expectations are understood and embodied by a team of individuals, psychological contracts can also foster workplace equality.
Each individual feels they act according to the same intangible elements which encourages team solidarity, cohesion, and performance.
Lastly, psychological contracts can also be used in situational judgment tests (SJTs) during the recruitment process. Interview candidates may be quizzed on situations that have no importance to an official employment contract but are far more relevant to a psychological contract.